Abstract
The Split-Share Structure Reform in China mandated the conversion of nontradable local A-shares into tradable status and increased A-share float. This paper examines the long-term pricing effects of the increased float. Given that foreign B-shares were not directly affected by this reform, we use B-share price to control for possible changes in firm fundamentals. We find that, across firms, larger increases in A-share float leads to larger decreases in A-share price relative to B-share price, even up to around ten years after the reform, suggesting that demand curves slope down in the long run. We also find that larger increase in float leads to larger decrease in turnover and volatility, and demand curves are less elastic when divergence of opinion is larger, consistent with the theory modelling investors with divergence of opinion.
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